GBP: Pound Climbs Friday as Brexit Talks Progress

The Pound climbed against most of the majors on Friday as markets responded to the British government’s new conciliatory progress with Brexit and the hawkish remarks from Bank of England (BoE) policymaker Ian McCafferty.

Brexit talks had previously hit a bit of an impasse, with both sides appearing unbending on subjects like the Brexit ‘divorce’ bill and the rights of EU citizens within the UK. This changed last Friday however as the UK acknowledged that it will indeed have financial obligations to the EU after its exit – a move that was perceived as a positive step forward.

Ian McCafferty’s hawkish statements came slightly earlier in the week, but GBP/EUR still maintained its resulting rally into the weekend as repeated mixed messages from the European Central Bank (ECB) kept the Euro under pressure.

There’s no big UK data scheduled for today, so GBP movements will primarily result from the resuming Brexit talks and the anticipation of tomorrow’s UK inflation figures.

The Pound to Euro exchange rate leapt some 80 pips on Friday, striking a three-week high as Brexit talks progressed and the ECB rattled the single currency with repeated mixed messages regarding monetary policy.

The revised June inflation data for the Eurozone was published this morning.

The annual inflation rate was revised to 1.3% (that’s a fall from May’s 1.4%) but consistent with the expected figure.

The year-on-year core inflation rate was also consistent with expectations, coming in at 1.1% and demonstrating an increase from the previous month’s 0.9%.

With the Eurozone’s inflation figures being predominantly soft, policymakers at the ECB will likely shift further towards the dovish end of the spectrum when it comes to commenting on the future path of interest rates and quantitative easing on Thursday.

This morning the Pound to Euro exchange rate has remained somewhat hesitant, lingering around the day’s opening levels.

GBP/USD: Pound to US Dollar Falls from 10-Month High

The Fed’s plans for a steady increase in interest rates depend on inflation reaching a target of 2%, a figure that the US fell well short of on Friday.

The US consumer price index report detailed that core prices remained unchanged in June, whilst non-core inflation fell from 1.9% to 1.6% and retail sales dropped for the second month in a row.

Michael Feroli from JPMorgan stated:

‘The weak trajectory of consumer spending at the end of second quarter adds some challenges to the third-quarter consumption outlook, which reinforces our view that growth will step down modestly in the current quarter.’

Understandably Fed rate bets dipped, with some forecasters only offering a 50/50 chance for further rate hikes in 2018.

With markets awaiting the UK’s inflation data tomorrow, the Pound to US Dollar exchange rate has begun the week edging away from its multi-month highs.

GBP/CAD: Pound Canadian Dollar Jumps a Cent Friday, Calms Monday

Friday saw Sterling rally roughly a cent against the Canadian Dollar amid heightened demand for the Pound. CAD profit-taking following the currency’s recent surge also contributed to the GBP/CAD gains.

The Pound’s recovery against the Canadian Dollar came to an end today however ahead of tomorrow’s UK inflation data. CAD exchange rates were also boosted as crude oil prices surged above $49 a barrel, giving the commodity-correlated ‘Loonie’ room to breathe.

It should also be noted that the outlook for additional Canadian rate hikes in the near-term remains likely, something that could drive GBP/CAD lower in coming months.

The Pound to Australian Dollar exchange rate predominantly fluctuated on Friday before ending the trading week with Sterling on top.

GBP/AUD initially dropped to a three-week low due to the negative US inflation data and strong Chinese trade figures driving demand for the ‘Aussie’ Dollar, but Sterling eventually regained its ground as investors seem hesitant to buy into the ‘Aussie’ before this week’s Reserve Bank of Australia (RBA) minutes (due Tuesday).

Friday saw Sterling leaping some 150 pips against the New Zealand Dollar as Brexit talks progressed and the BoE seemed increasingly hawkish.

This week will see the release of the eponymous New Zealand dairy auction figures – and prices have dropped the past two auctions in a row. Should the decline continue then the Pound will likely cling to its recent gains against the ‘Kiwi’.